With the acquisition of Activision Blizzard, Microsoft wants to continue to dance in the metaverse

Text/Forbes China

Image source: Visual China

In 2008, Microsoft had the opportunity to create the largest tech deal in U.S. history at the time— buying Yahoo for about $50 billion. Faced with Google's dominance in the global search market, Microsoft hopes to use Yahoo to improve its loss-making Internet business, which is seen as its new growth point, and for the declining Yahoo, accepting a price about 60% higher than its stock price seems like a good choice. However, Yang wanted to raise the price further, and Steve Ballmer was reluctant to give in, and eventually three months of negotiations were in vain.

Now, a similar opportunity has come to Microsoft again: On January 18, local time in the United States, the rich tech giant announced its intention to acquire activision Blizzard, a game developer and publisher, for $95 per share, or a premium of nearly 50%.

According to the announcement, the acquisition includes familiar IPs such as Warcraft, Diablo, Overwatch, Call of Duty, Candy Crush, events owned by esports league Major League Gaming (MLG), and Nearly 10,000 Employees worldwide.

If successful, the $68.7 billion deal would exceed the $67 billion dell acquired EMC in 2016, setting a new record, and Microsoft would be the world's third-largest gaming company after Tencent and Sony. (The EMC acquisition is a classic deal that has revived both Dell and Michael Dell, see the report "How Dell's Founders 'Salted The Fish', With a Net Worth Soaring to $50 Billion'")

"Gaming is the most dynamic and exciting entertainment category of all platforms today, and it will play a key role in the development of metaverse platforms." Microsoft Chairman and CEO Satya Nadella said. "We are making deep investments in world-class content, communities and the cloud to usher in a new era of gaming that puts players and creators first. In this day and age, games will become safe, inclusive, and accessible to all. ”

Initially, Microsoft didn't take the game seriously. In the 1980s and early 1990s, companies such as Atari, Sega, Nintendo, Commodore, Electronic Arts, and Activision controlled most of the game market, while Microsoft had little presence, despite having released games like Microsoft Adventure and Olympic Decathlon in 1979 and 1980. At the time, Microsoft's most famous game was probably Microsoft Flight Simulator, but it was a ported version of the Apple II.

It wasn't until 1995 that Microsoft began to take games seriously. That year, Microsoft released a technology called DirectX at the Game Developers Conference (GDC) to provide a unified coding layer (API set) for 2D and 3D graphics cards of all game companies. While game companies aren't buying in, DirectX is a valuable innovation.

In 1997, Microsoft launched Age of Empires, proving the company's ability to make successful original games. It was at this time that Microsoft decided to act as a third-party game publisher, including copying, packaging, distribution and marketing. As the PC gaming market grew, the number of people in this business unit increased from about 50 to thousands in a few years.

Around 2000, Microsoft began designing new consoles and officially released its first Xbox in November 2001, and since then, the company's growth in the gaming space has gradually accelerated. A steady stream of high-quality original games, big-budget media ads with new product releases, and excellent Metacritic website ratings have made Xbox more and more brand awareness and better market performance. Microsoft's first quarter of fiscal 2022 data shows that Xbox hardware revenue increased by 166% year-on-year.

In addition to increasing device sales and updating hardware performance, Microsoft has also successively launched cloud streaming, cross-platform saving, cross-platform online play, game subscription and other services. For Microsoft, it's about building a larger ecosystem of games, and if you're going to paraphrase the next popular concept, it's the metaverse.

"I want to experience what I have on any screen that can present images, I want to have my experience anywhere and share it with the people I want, all through a lot of cloud infrastructure, and in a really open way." Phil Spencer, CEO of Microsoft's gaming division, has told the media. In his view, this "anywhere playable" concept and approach reflects the significance of the metacosm in meeting the needs of players and creators.

Compared to any other technology or gaming company, Microsoft already owns and operates many elements that could play an important role in the realization of the metaverse, including a global gaming platform and digital store Xbox that can provide services with a network connection, the HoloLens hardware team, and the AltspaceVR and Mesh platforms that provide augmented, virtual reality, and mixed reality experiences. Not only that, but Microsoft also has a Windows operating system that can achieve productivity, workplace, and collaboration scenarios, Office software and Teams video tools, as well as an Azure cloud platform that supports all of this.

On this basis, the acquisition of Activision Blizzard will enhance Microsoft's Game Pass content, and the number of subscribers to the service may also usher in new growth. Activision Blizzard has nearly 400 million monthly active users and three $1 billion franchises in 190 countries, so the acquisition will make Game Pass one of the most attractive and diverse gaming content in the industry.

In addition, Microsoft also plans to create a "3D meta-universe". "Halo is a metaverse, Minecraft is a metaverse, and flight Sim is too. In a sense, the games are all 2D now, and the question is whether you can turn it into a complete 3D world now, and we definitely intend to do that. Satya Nadella told Bloomberg TV last November.

At present, Microsoft's acquisition of Activision Blizzard has been approved by both parties, but its ultimate success will depend on the customary closing conditions, regulatory review, and approval of Activision Blizzard shareholders. The transaction is expected to close in fiscal year 2023 and will be incorporated into Microsoft's non-GAAP earnings per share data upon completion of the transaction.